Lecture 1: Economics

(i) Meaning,
(ii) Definitions
(iii) Scope and
(iv) Positive Science or Normative Science
(v) Subject matter
(vi)Approaches to economic analysis; micro and macro-economics
The word ‘Economics’ originates from the Greek work ‘Oikonomikos’ which can be divided
into two parts: ‘Oikos’, which means ‘Home’, and ‘Nomos’, which means ‘Management’.
Thus, Economics means ‘Home Management’. The head of a family faces the problem of
managing the unlimited wants of the family members within the limited income of the family.
In fact, the same is true for a society also. If we consider the whole society as a ‘family’, then
the society also faces the problem of tackling unlimited wants of the members of the society
with the limited resources available in that society. Thus, Economics means the study of the
way in which mankind organises itself to tackle the basic problems of scarcity. All societies
have more wants than resources. Hence, a system must be devised to allocate these resources
between competing ends.
Definitions:
1. Wealth definition: Classical Economist Adam smith (1776) has given their views as “An
enquiry into the nature and causes of the wealth of nations”. Ely also defined economics as
“Economics is the science which treats of those social phenomena that are due to the wealth-
getting and wealth-spending activities of man”.
2. Welfare definition: Alfred Marshall (1890) given by their concept as “A study of mankind in
the ordinary business of life it examines that part of individual and social action which is most
closely connected with the attainment and with the use of material requisites of well- beings”.
Marshall has given priority to human welfare by upliftment each &every individual of the
society with the attainment of wealth.
3. Scarcity definition: (Lionel Robbins) given definition based on scarcity concept “Economics
is the science which study human behaviour as relationship between ends and scarce means
which have alternative uses”. Robbins have elaborated his views in 1. Unlimited wants (ends),
2. Limited means (resources) and, 3. Alternative uses of means.
4. Growth definition: According to Samuelson “Economics is the study of how men and society
choose, with or without money, to employ scarce productive resources which could have
alternative uses to produce various commodities over time, and desirable them for consumption
how and in future among various people and groups of society”.
Scope of Economics (Sphere of the subject or study)
Economics – As a Social science:
In Economics studies man living in organized society, exchanging his goods for those of others,
influencing then by his actions and being influenced by them is turn. He depends on them and
they him. Economics is thus, a social science and not one dealing with individual isolated
human beings. Interest in how almost completely shifted to the economy as a whole, how it
grows and develops, the factors that hinder its growth and the measures that would help or
accelerate it.
Economics-As a science or an Art:
First it is interesting to know what is ‘Science’ and ‘Art’ actually mean. A science is a
systematized body of knowledge, when relevant parts have been collected and analysed in a
manner that we can “trace the effect back to their causes and project causes forward to their
effects”. Then, it is called a science. A science lays dawn general principals which help to
explain things and guide us.
But economics is also an art. An ‘Art’ lays dawn formulae to guide people who want to achieve
a certain aim. The aim might be the removal of poverty from a country, the production of more
paddy& wheat from an acre of land. Economics is also an art. Economics does undoubtedly
help us in solving many practical problems of the day. It is not a mere theory it has great
practical use. It light –giving and fruit-bearing. Hence, Economics is both a Science and an Art.
Positive Science or Normative Science:
Positive economics describes and explains various economic phenomena or the "what is"
scenario. Normative economics focuses on the value of economic fairness, or what the
economy "should be" or "ought to be.
Economics is both a positive and a normative science. It not only tells us certain things happen,
it also says whether it is the right thing to happen for example we know that a few people in
the worlds are very rich, while the messes are very poor. Economic should explain not only the
causes of this unequal distribution of wealth, but it should also say whether this is good or bad.
It might well say that wealth ought to be fairly distributed. Future, it should suggest the method
of doing it.
Subject matter of economics:
Two approaches: 1. Traditional Approach 2. Modern Approach
Traditional approach
1. Consumption – It means the use of wealth to satisfy innumerable wants. It also means the
destruction of utility. All the goods that are produced are consumed immediately or some
time in future hence consumption represents using up of utilities.
2. Production – It is an activity that helps to create utility it simply means the addition of
utilities. Hence, production is defined as the creation of utility. Through the process of
production one set of goods is transformed into products that have value too, i.e. output.
3. Exchange-The word exchange of goods implies transfer of goods implies transfer of goods
from one person to the other. Exchange of goods takes place among groups of individuals,
countries, markets, regions and so on. The exchange of goods leads to an increase in the
welfare of the individuals through creation on higher utilities for goods and services.
4. Distribution – It refers to the sharing of wealth produced by the community among the
agents of production proper distribution of wealth and resources leads to growth and
economic welfare of the people in the nation.
Modern approach
1. Microeconomics- Micro means a millionth part. It is otherwise known as price theory. It
focuses on price determination. Micro economics fundamentally deals with economic
behaviour of individual economic units such as consumer, resource owners and business
firms it is concerned with the flow of goods and services from business firms to consumer
and also the flow of resources or their services from resource owners to business firms.
2. Macroeconomics: The term macroeconomics is called income theory. It treats the
economic system as a whole, rather them treating the individual economic units of which
it is composed. Macroeconomics is concerned with the value of the overall flow of goods
and the value of the overall flow of resources. Thus, it covers theory of income and
employment, theory of money and prices, banking, theory of economic growth, theory of
distribution, general equilibrium analysis, policy formulation and analysis etc.